Definition:
A long-term agreement between a government entity and a private company to develop infrastructure or services, sharing risks, costs, and benefits.
Key Components:
- Private Financing: The private sector provides funding for public infrastructure.
- Revenue Mechanism: Government payments or direct user fees recover investment costs.
- Risk Allocation: Risks distributed between public and private entities based on expertise.
Use Cases/Industries:
- Transportation: Toll roads, rail networks.
- Energy Infrastructure: Power plants, water treatment facilities.
Advantages:
- Reduces Public Spending: Shifts financing burden to private investors.
- Improves Efficiency: Private sector expertise enhances project execution.
Challenges:
- Long-Term Commitment: Extended concession periods (20+ years) can pose financial risks.
- Regulatory Uncertainty: Political changes may impact agreements.
Related Terms:
Build-Own-Operate-Transfer (BOOT), Concession-Based Financing
Example:
A government partners with a private firm under a PPP contract to construct a waste-to-energy facility, with the private sector handling design, financing, and operation before transferring ownership after 30 years.
Visited 1 times, 1 visit(s) today
Synonyms:
Concession Agreement, Build-Operate-Transfer (BOT)
